Oscillator indicator is any object or data moves back and forth between two points. In other words, this is an item that will always fall somewhere between point A and point B. so, try to think about when you hit a switch on your electric fan, what's going to happen. Please think about Technical indicators as "on" or "off". More specifically, an oscillator will usually produce a signal "Buy" or "Sell", with the only exception being instances when the oscillator is not clear between the two ends of the range in which the buy / sell will be executed.
Stochastic, Parabolic SAR, and the Relative Strength Index (RSI) is an oscillator. In each of the indicators have been designed to signal a reversal, at which time the previous trend has run its course, the price component ready to change direction. let us look at the example below: I have presented the three oscillators on GBP / USD daily chart below. Remember when we discussed how to work Stochastic, Parabolic SAR, and RSI?
Then, in the third week of January, Stochastic, Parabolic SAR, and RSI all Selling signaling. When viewed from the drop 3 months later, then you have made a lot of pips if you do sell. However, at about the middle of April, the third oscillator gives a sell signal back, after price made a sharp dive. Now let's look at the leading oscillator gives a false signal, just so you know these signals are not perfect. In the table below, you will be able to see that the indicator may give conflicting signals. For example, Parabolic SAR gives sell signal in mid-February while the Stochastic shows the opposite signal. Which one should you follow? RSI seems like you are in doubt because it does not provide sufficient signal to perform the open position buy and sell at the time.
if we look at the chart above, you'll quickly see many false signals are emerging. During the second week of April, both the Stochastic and RSI gives sell signal while the Parabolic SAR signal no. Prices continue upward from there and you could lose a lot of pips if you immediately open sell short. Thus you will be even more lost about the middle of May if you do buy from Stochastic and RSI and just ignore the sell signals of the Parabolic SAR.
Then what should we do? The answer lies in the method of calculation for each. Stochastic based on the price range of high-to-low on the time period (in this case, it's per hour), but does not account for the change from one hour to the next. Relative Strength Index (RSI) uses a change from the closing price to the next closing. While the Parabolic SAR has its own unique calculations that can lead to further conflict oscillator That bebera of nature. They assume that the movement of a certain price always produce the same recovery. Of course, that's nonsense. While you realize why the primary indicators may be wrong, there is no other way to avoid them. If you get a mixed signal, you better not do anything other than take a "best guess". If the chart does not meet all your criteria, do not force yourself to enter the market.
Those bout Leading Indicator Forex wish give you more bennefite...do sharing with this artcle
